Exam 3 - Module 9
A perfectly competitive firm's marginal revenue
Is equal to its price
Diet Coke ________ considered a product in a monopoly market, because ________.
Is not; it has many substitutes
A monopoly firm's demand curve
Is the same as the market demand curve.
If a firm shuts down in the short run,
Its loss equals its fixed costs
A price maker is
A firm that has some control over the price of the product it sells.
Which of the following statements is false?
Marginal cost will equal average total cost when marginal cost is at its lowest point.
Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit-maximizing outputs?
Marginal revenue is less than price.
The price of a seller's product in perfect competition is determined by
Market demand and market supply.
Which of the following is the best example of a perfectly competitive firm?
A corn farmer in Illinois
If the marginal cost curve is below the average variable cost curve, then
Correct average variable cost is decreasing.
If fixed costs do not change, then marginal cost
Equals the change in variable cost divided by the change in output.
Economic costs include implicit costs but not explicit costs.
False
Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?
Restaurants do not sell identical products.
The processes a firm uses to turn inputs into outputs of goods and services is called
Technology
Which of the following is an example of a factor that a firm's owners and managers can control in making the firm successful?
The ability to produce the product at a lower cost
What is always true at the quantity where a firm's average total cost equals average revenue?
The firm breaks even
Which of the following is an example of a long-run adjustment?
Walmart builds another Supercenter.
Which of the following statements is false?
When marginal cost equals average total cost, average total cost is at its highest value.
If the total cost of producing 20 units of output is $1,000 and the average variable cost is $35, what is the firm's average fixed cost at that level of output?
$15
If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is
$25
If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then
New firms are attracted to the industry.
If a typical firm in a perfectly competitive industry is earning profits, then
New firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease.
Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?
No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes.
Suppose that a firm in a competitive market succeeds in producing a superior product and selling it at a price that generates a large demand. As a result, the firm's market share is almost 100 percent. Meanwhile, other firms are trying to regain their market shares through research and development. Is this firm a monopolist?
No, because it faces potential competition from other companies.
If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's total variable cost at that level of output is
$700
Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's profit?
(P × Q) - TC
Relative to a perfectly competitive market, a monopoly results in
A gain in producer surplus less than the loss in consumer surplus.
Which one of the following about a monopoly is false?
A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly
Which of the following would be categorized as an opportunity cost? a. not being able to spend your $10,000 savings if you sink the money in your business b. the cost of purchasing supplies for your house-cleaning business c. the cost of purchasing auto insurance for your dry-cleaning delivery business
A only
A characteristic of the long run is
All inputs can be varied
Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?
Allocative efficiency
In recent years, Amazon has lowered its profits by offering some of its customers free shipping on books and building more warehouses to hold its book inventories. Which of the following explains Amazons actions?
Amazon took these actions to compete more effectively with existing online booksellers.
A natural monopoly is most likely to occur in which of the following industries?
An industry where fixed costs are very large relative to variable costs
To maintain a monopoly, a firm must have
An insurmountable barrier to entry
Which of the following statements is true?
As output increases, average fixed cost becomes smaller and smaller.
Which of the following is not true for a firm in perfect competition?
Average revenue is greater than marginal revenue.
As word processing on personal computers expanded, sales of typewriters began to disappear. Which competitive force does this event demonstrate?
Competition from substitute goods or services
Both buyers and sellers are price takers in a perfectly competitive market because
Each buyer and seller is too small relative to others to independently affect the market price.
Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?
Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.
Economic costs of production differ from accounting costs in that
Economic costs add the opportunity costs of a firm using its own resources while accounting costs do not.
If marginal cost is above the average variable cost, then average variable cost is decreasing.
False
If price is equal to average variable cost, then a perfectly competitive firm breaks even.
False
The perfectly competitive market structure benefits consumers because
Firms are forced by competitive pressure to be as efficient as possible.
A profit-maximizing monopoly's price is
Greater than the price that would prevail if the industry was perfectly competitive.
A public franchise
Is a government designation that a private firm is the only legal producer of a good or service.
If a perfectly competitive firm's price is above its average total cost, the firm
Is earning a profit
If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm
Is incurring a loss
A firm could continue to operate for years without ever earning a profit as long as it is producing an output where
MR > AVC
The minimum point on the average variable cost curve is called
The shutdown point
Which of the following is not a characteristic of a perfectly competitive market structure?
There are restrictions on exit of firms.
If a monopolist's marginal revenue is $35 per unit and its marginal cost is $25, then
To maximize profit the firm should increase output.
The basic activity of a firm is
To use inputs to produce outputs of goods and services.
Which of the following vosts will not change as output changes?
Total Fixed Costs
For a natural monopoly, the marginal cost of producing an additional unit of its product is relatively small.
True
If a firm shuts down in the short run, it avoids its variable cost but not its fixed cost.
True
A monopolist's profit-maximizing price and output correspond to the point on a graph
Where marginal revenue equals marginal cost and charging the price on the market demand curve for that output.
A monopoly is the only seller of a product
Without a close substitute
Which of the following is the best example of a short-run adjustment?
Your local Walmart hires two more associates.
Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy corn farmer in Iowa, who sells his output in the world commodity market, does not. Why is this so?
Because Microsoft could potentially lose sales if it sets prices indiscriminately
Why does a monopoly cause a deadweight loss?
Because it stops producing output at a point where price is above marginal cost
The De Beers Company, one of the longest-lived monopolies, is facing increasing competition. One source of competition comes from people who might resell their previously owned diamonds. Why is De Beers worried that people might resell their previously owned diamonds?
Because previously owned diamonds would be a close substitute to newly mined diamonds and would therefore reduce De Beers' market power
In the long run, the entry of new firms in an industry
Benefits consumers by forcing prices down to the level of average cost.
Marginal cost is calculated for a particular increase in output by
Dividing the change in total cost by the change in output.
In the long run which of the following is true?
There are no fixed costs
A perfectly competitive industry achieves allocative efficiency when
Goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
A supplier of an input is unlikely to have bargaining power if
Many firms can supply the input.
If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, then the firm
Should shut down
If a typical firm in a perfectly competitive industry is incurring losses, then
Some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firms.
In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are
Sunk Costs
In the long run, a perfectly competitive market will
Supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve.
A monopoly is characterized by all of the following except
There are only a few sellers, each selling a unique product.
Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?
The firm will not sell any output
In perfect competition,
The market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.
Implicit costs can be defined as
The non-monetary opportunity cost of using the firm's own resources.
A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for both
There are many other suppliers of similar goods or services.